On 26 November, alongside a number of other announcements, the Government released a preliminary draft of legislation that is intended to overhaul the way in which councils fund growth-related infrastructure, by replacing the current development contributions regime with development levies. This is Pillar 2 of the Going for Housing Growth Programme. Pillar 1 addressed land supply, and Pillar 3 is proposed to cover incentives for growth. 

The main policy driver for the Pillar 2 reforms is that development contributions are designed for a planning system that relies on controlled land release, with the contributions regime being insufficiently flexible to accommodate fragmented growth patterns. As a consequence, councils are under-recovering from developers, with the shortfall in funding needing to be borne by ratepayers who are not directly creating the need for new growth-related infrastructure. 

The proposed development levies are said to better support the “growth pays for growth” principle, with predictable, flexible funding for infrastructure, and greater predictability for developers about the levies they will be required to pay.

This update highlights the main differences between the existing development contributions (DCs) regime and development levies (DLs). 

Fundamental change in approach

The main changes are summarised in this table:

Aspect	Development Levies (DLs)	Development Contributions (DCs)
Nature of Change	A charge for development across a wider area.	Location-specific charge, requiring a tight link between identified infrastructure projects in a defined growth area, and specific developments which benefit from that infrastructure.
Geographic Scope	Applies across larger areas, covering entire communities or service networks (e.g., transport).	Applies to specific developments benefiting from identified infrastructure projects.
Basis of Calculation	Aggregate cost of providing infrastructure capacity for growth across the levy area.	Cost tied to specific sites and identified capital projects.
Cross-Subsidisation	Possible within the levy area due to aggregated approach.	No cross-subsidisation; costs are tightly linked to benefiting developments.
Planning Approach	Council plans for sufficient infrastructure capacity to support predicted growth within the levy area.	Council predicts growth in specific areas and plans infrastructure accordingly.
Cost Recovery Method	Every unit of growth in the levy area pays a share of expected infrastructure capacity cost.	Costs recovered only if growth forecasts for specific areas are accurate.
Certainty of Projects	Does not require identification of specific projects; focuses on overall capacity.	Requires identified and costed projects with a high degree of certainty.

The “community”: levy areas

Under the draft proposals, the geographic coverage of a particular DL is the “levy area”. The default position is 1 levy area within the council’s district for each service (services that can be levied for are drinking water, wastewater, stormwater, transport, reserves, and community infrastructure).  However more than 1 levy area may be established if there is “good reason” for doing so - which includes where there is not routine travel between 2 communities for the purposes of employment, leisure etc. Any additional levy areas must be centred on a single urban community - an entire town or city - but can include related urban communities, unrelated communities which rely on the same infrastructure, or surrounding rural land that may benefit from the service the levy is required for. This contrasts with the DC regime, where there can be more localised catchments.

There may be a different levy zone for the different services funded by DLs, but there must be a uniform base levy across the levy zone, with possible additional charges for sub-areas where infrastructure costs are significantly higher (a “high-cost overlay”).

Methodology for determining DLs

It is proposed that the new legislation will set out a detailed methodology for calculating DLs. This is still being developed.

As with DCs, this will involve identifying the eligible capital projects which will provide the required infrastructure capacity within the relevant area.  However, councils will not be obliged to deliver the specific future projects used in the methodology, and the levy revenue may be used to meet other recoverable growth costs for the relevant service, which benefit the levy area. This is more flexible than under the current DC regime.

An in-principle decision has been made to establish the Commerce Commission as the regulator for councils charging DLs to ensure compliance and fairness.

Other changes

Many aspects of the proposed legislation are based on equivalent provisions applying to DCs. However, some different features include:

• A DL policy (the equivalent of the current DC policy) will come into effect on the day it is notified for consultation, rather than when it is adopted.  This is designed to minimise applications being lodged before a new policy comes into force, to get the benefit of more favourable levies under an outgoing policy.  However, the council must make an adjustment if the final policy would result in a lower levy (when compared to the notified levy);
• Assessed DLs will be subject to quarterly interest until paid;
• DLs may be reassessed after set time periods – the proposal is for 3 years - or policy changes; This is to prevent developers “locking in” DLs which are not paid until many years later when charges have increased;
• Councils will be allowed to impose an administrative charge;
• “Bespoke” assessments” (outside of a development agreement) will be allowed; and
• Councils may reimburse costs of “first mover developers” who build infrastructure which supports future development.

Implications for Councils and developers

For Councils, the main positives are that DLs will improve their ability to fund infrastructure for dispersed growth, reduce the risk of under-recovery when development occurs outside planned areas and provide flexibility to allocate funds across projects if priorities shift. 

For developers, the main intended positives are a more predictable and transparent levy framework and reduced risk of sudden cost spikes for out-of-sequence developments. However, aggregate costing could possibly result in higher charges for developments in low-cost areas, and developers may have more limited ability to influence levy rates based on local infrastructure needs.

Implementation Timeline

Consultation on the preliminary draft Bill will run until early 2026.  It is proposed that a Bill will then be introduced in May 2026 and passed in the first quarter of 2027. It is expected that Councils can begin to charge DLs (after having adopted DL policies) from July 2028.

Get in touch

If you would like to discuss the implications of the new proposed levy framework, or would like assistance with preparing a submission on the consultation document, please get in touch with one of our experts listed below.